Pressure on government to make budget repair levy permanent

Gareth Hutchens, Peter Martin, Mark Kenny

The Turnbull government is being called on to retain the temporary budget repair levy on high-income earners, which is due to expire next July, after conceding this week that tax cuts for individuals may be unaffordable in this budget due to lack of funds.

The temporary 2 per cent loading on the top tax bracket is scheduled to be removed in July 2017, giving high-income earners on more than $180,000 an effective tax cut.

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Treasurer Scott Morrison pointed this week to the removal of the repair levy next year as an example of a future tax cut on the horizon – a comment designed to placate high-income earners who have been conditioned to expect tax cuts in this budget.

But now the Greens are calling on the Turnbull government to make that 2 per cent loading permanent, and also to introduce a new 50 per cent tax bracket specifically for ultra-high income Australians earning more than a million dollars a year.

Prime Minister Malcolm Turnbull is under pressure to make the 2 per cent loading on high-income earners permanent. Photo: Andrew Meares

Modelling by the Parliamentary Budget Office, obtained by Fairfax Media, and commissioned by the Greens, shows such an initiative would affect a small minority of taxpayers, and raise $4 billion over the next four years.

According to Australian Tax Office statistics, if the temporary budget repair levy was made permanent it would affect only the top 2.98 per cent of taxpayers, 382,000 people.

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If a new marginal tax rate of 50 per cent was introduced for people who earn more than $1 million a year, it would affect just 0.08 per cent of taxpayers, or 9850 people.

According to the modelling, those two tax changes would raise $4.1 billion for the government over the next four years, and potentially $24 billion by 2025-26.

Greens leader Richard Di Natale said the Turnbull government needed to seriously consider the proposal, given the pressures of disappearing revenue.

"Today, the Greens are putting these costings on the table and calling on the government to recognise that making the deficit levy permanent makes good economic sense," he said.

"The alternative is to continue dismantling our social safety net and slashing funds for schools and hospitals, which is a recipe for a more unfair society."

The temporary budget repair levy was introduced by the Abbott government in its 2014-15 budget and was designed to remain in place for only three years, to be removed in July 2017.

It increased the rate at which high-income earners are taxed for each $1 over $180,000, from 45 cents to 47 cents.

If the government allows the repair levy to expire next year on schedule it will find it harder to promise further income tax cuts because it would effectively be offering high earners two cuts.

It would also be hard to justify because the federal budget will still be in substantial deficit. When the deficit repair levy was introduced, the budget was facing a deficit of 2.8 billion in 2017-18. The forecast has since blown out to $23 billion.

On Tuesday, Treasurer Scott Morrison appeared to rule out the possibility of income tax cuts in this year's budget, saying with little funds at his disposal, if he had to choose between personal and company income tax cuts, he would choose company tax cuts because they would boost economic growth.

The backdown on personal tax cuts came as his chief departmental advisor on tax, Treasury revenue group chief Rob Heferen, stepped down from the job to take a post in the industry department, where he will work on energy resources in northern Australia.

Then on Wednesday, the government said it would review the so-called "backpacker tax," announced in the second Abbott budget, that would have made working holiday-makers no longer residents for tax purposes, removing their eligibility for the tax-free threshold and taxing each dollar they earned.

The Tourism & Transport Forum Australia welcomed the review, saying it was a victory for common sense. The National Farmers Federation said the tax would have threatened the ability of farmers to obtain reliable workers.

The Turnbull government is considering extending its borrowings in the budget to fund major infrastructure projects, issuing Australia's first 30-year bonds to lock in long-term funding at low rates.

It will also require more from state governments in return for infrastructure grants, requiring them to demonstrate that they will boost economic growth and to part-fund them by imposing special levies on the increased land values.

Correction: An earlier version of this story incorrectly said the number of people earning over $180,000 was 1.3 per cent of taxpayers.